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The Only Jackson Hole Analysis You Need

I’m sure most of you have read enough about tomorrow’s Jackson Hole speech by Bernanke to make your eyes bleed. I agree with Josh Brown in his post, titled “QE3: Shut up, you have no idea.” when he said that no one can predict what Bernanke will say, all of the media pundits that are making calls as if they had pillow talk with Ben the night before is just foolishness and a waste of time.

Just to get it out of the way, my opinion (and it’s just that, Bernanke hasn’t returned my voice mail yet) is that the market will be disappointed tomorrow. It doesn’t seem to me we have the economic data to warrant another round of QE. Now he may hint at something else, like I said before, no one knows for sure so don’t lose any sleep trying to figure it out.

What is important at this point is to take a step back and look at where we are today regarding market structure. The chart below shows the trading range we are currently in. We have defined resistance at 1420, the previous high as well as the rising trend line. On the downside we have the 50-day moving average sitting just a hair above the bottom trend line at 1380.

When turning our focus to other components of the market, we’ve had the 10-year yield drop to 1.62% from the last time we looked at the 10-year on August 22. While the S&P 500 has closed +/- 1 point the past three days, the VIX has risen over 6%. OptionPit put out a great piece on the topic of the VIX this morning, detailing that the rise in the VIX has largely been due to the massive amount of put buying being done on the SPX, causing the volatility index to rise above what he feels its fair value should be (somewhere in the single digits). Buying pressure continues to fall as traders appear to be losing confidence.

However, investor sentiment has created a dichotomy. On one hand we have sentiment data from places like II and AAII that shows bulls outnumbering bears at a wide margin, but when you look at the market commentary being put out, it seems there are an awful lot of bears out there.

Everyone is waiting for tomorrow. Twitter and StockTwits will likely explode once Bernanke takes the podium. At (expected) major market moving junctures like tomorrow it’s important to not forget your trading plan and stick to your risk management principles. Yes it’s possible that what he says could have a dramatic impact on where we go from here, but the Fed isn’t the only game in town, Europe is still imploding and China’s Shanghai index is still hitting new 52-week lows. Lots to think about and digest.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.